The market is volatile these days with short term money to be made. The question becomes: how to learn options from trustworthy sources? I take ideas from hand-picked resources and practice using TD’s paperMoney to paper trade. The account is free and I highly recommend it! Here’s a video on how to get started with paperMoney.
What kind of trader am I?
An investor’s core style and goals dictate the trading strategies. I’m a buy and hold investor; it’s hard to beat the appreciation of great companies bought on a discount. For example I bought Home Depot and Apple when they were discounted from news of a potential tariff war between the US and China. Both have appreciated almost 100% a year later.
My goal is to use options to:
- Hedge a few concentrated positions
- Generate income from those positions
- Purchase more shares on a discount
To generate ‘income’ and to buy stocks on sale I sell cash-secured puts. So far I’ve made 10% in one month, and have been assigned once. The assingment was for SPG, a quality mall REIT at a $65, a low price for the stock. Another stock I’m trading options on is ALK. I enjoy flying Alaska; it is the only airline that I’ve been drunk on (thanks mai tai!). Both stocks are volatile thanks to COVID, and I’m conservatively making money off of the price action.
I also follow a few financial bloggers on options trading. I don’t purchase their services ie. courses or trade alerts, but follow them because their trading strategies align with my goals. One blogger advocates for selling puts to get stocks on a discount, which I agree with and have put to good use (pardon the pun). Another blogger advocates for using a small watchlist to decrease time on research and to buy only the best stocks. I agree with that so I’ve added it to my practice. I also agree with keeping 40-45% account available to limit potential losses, and for closing orders early ie. place an order to buy back the put at 50% of the original premium. I don’t agree with everything I read though; for example I disagree with having no equity in a portfolio; again, I’m a buy and hold investor. So I read broadly but only practice what resonates with me.
I’m a huge fan of TD ameritrade videos; they are just as entertaining as Netflix, much shorter than Netflix, and help you make money to pay for Netflix. My favorite videos include trading on margin and the drawdown. The latter illustrates how recovering a loss takes a greater percentage: ie. if lose 10% of account, need 11% to return to initial balance. The reminder keeps me from being greedy.
The Ameritrade blog posts are also good. For example this one on option sizing. While the blog posts are admittedly less visual than the videos, I love how easy they are to scan. Also like this blog post on trading in the retirement account.
That’s it for now! Trading options is not for everyone, I’m having fun and learning lots. So far I’ve made money trading volatile and battered stocks. Looking forward to how well I do in a year.